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The Oracle of Omaha, Warren Buffett, of Berkshire Hathaway (NYSE: BRK.A) spent a few moments on CNN answering some key questions about the economy at a Fortune Magazine Forum. He was asked where he would place the blame for the current financial crises being played out on the world stage, and he said he is not one to point fingers. There is plenty of blame to go around.Initially Buffett quipped that "every saint has a past, and every sinner has a future." He went on to say that the everyone participated in the creation of the housing bubble with the unrealistic expectation that prices would continue to rise.
He summarized that home ownership is worshiped in the United States, and once cheap funding became available and prices started to rise there became the feeling that if you did not buy a home now you would be facing higher prices next year and perhaps less favorable interest rates as well.
Speculators took part in the price escalation and the banks sold off their loan portfolios as fast as they could to get fresh cash to be able to loan anew. Everything became fee driven instead of value driven and everybody staked their claim, from the smallest mortgage broker to the largest investment bank. Creative new investment vehicles were developed to increase leverage and profits, and it has blown up in all of our faces.
In my view we had a situation where there were only winners and no losers and it spun out of control in a flurry of ever larger and ever more unrealistic expectations. Now we have mostly losers and the end is not yet in sight.
Buffett was asked about his interest in investing in this environment, and he said that he would be interested in Residential Mortgage Backed Securities and even some Commercial Mortgage Backed Securities for the right price. He went on to say he would not have any interest in the derivative type of instruments that were too far removed from the first trust deeds and were still to hard to place a value on.
He also said that he thought very highly of Henry Paulson, the Secretary of the Treasury, and thought he had the expertise, energy, and brains to deal with the present dilemma. Furthermore, he would support his staying on with the new administration regardless of which party was in office, but that today was probably not a good day to call him up and discuss it.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of BRK.B.
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Reader Comments (Page 1 of 1)
10-02-2008 @ 5:26PM
Iridium said...
Honestly even though Buffet can be right I just can't stand the guy.
To me he is just a greed monger who uses his massive portfolio to influence the market in order to profit at huge expense to the economy.
He can influence a stock so much that he can raise billions on paper or put your company into bankrupcy if he sells. Then he will swoop in when you need his money to be solvent and make a deal that will net him billions over the next few years.
The man plays the market like it is a cheap card game and really is a menace. Singular entities should not be able to exert as much mower as he can.
10-02-2008 @ 5:34PM
william lindblad said...
Very interesting article and your perspective is probably close to the truth - from the "what happened stand point". It is easy to point fingers and assign blame and I certainly have some prime candidates. Since I have mentioned them numerous times both here and direct Congressional Email - once more won't hurt.
Those that have oversight and the power to intervene sit on the Senate and House, banking and financial committees. Members of both national parties occupy these seats and I blame both sides of the political fence. I listened to hearings of these committees that were televised and do not recall anyone asking about "0" down, 100% financing, no credit checks. That coupled with real estate price escalations that were so far out of line with real wages should have been sufficient warning. As all of the above signs were abundant and public, ignorance is a poor excuse.
Many will blame the Glass Steagall banking act of 1999 as the source of all ill and it has merit. It surely did open banking and prompted Fannie and Freddie to make more loans to the lower income tiers. If the tenants of this bill had been adhered to the present situation would probably not exist. The majority of the problem has arisen due to greed and excess. Prices rose at a rocket pace, luxury became a by-word and a gold rush began. The money to fund this piece of insanity came from all over the world, so much so that with all of the fancy packaging - the exact amount is still unknown.
I disagree with a bail out, although I know that the government will eventually do something in this vein. I hope it is very modest for a blank check will be the ruination of this country. Our current debt package is high enough and once the bail outs start, it becomes too easy to come back. The price on the housing fiasco is going to exceed 3 trillion - an amount the people can ill afford.
As a taxpayer I can offer but one suggestion to the masses - go self sufficient if you can, and know how - I am.
I fully expect a major disaster.
10-02-2008 @ 7:32PM
JCH said...
3 trillion, even if true, would be easily affordable. This an exceedingly wealthy country.
Yes, the government will eventually do something in this vein - like probably tomorrow.
10-03-2008 @ 7:39AM
Harvey Mushman said...
William, I've been following your posts for a while now and must finally say that I agree with just about everything you've written for months. Would you mind if I write in Lindblad on election day?